Now is the Time to Gift to Your Family

David Shallenberger | July 19th, 2012

Expiring Provisions Will Cost you Big

There is a gentleman I know who started a successful business and has become a wealthy man. He always tells me that he wants to provide for  his children and grandchildren – however, he needs to wait to make sure his wife will have the money the need to live comfortably for the foreseeable future. It’s something he adds to his to-do list for the fantasy “next year.”

It’s respectable that he’s worried about the economy, and the impact it may have on his personal lifestyle. However, Uncle Sam is taking the luxury of waiting away from many people. If you’ve ever considered making a gift, there may not ever be a more opportune time.

Why Next Year is Now

Individuals with substantial personal wealth should sit down and determine just how much wealth is needed, for themselves and their spouse, to live comfortably the remainder of lives. And then consider gifting anything over that amount in 2012.

So why now? Why so fast? The answer is simple – there are tax provisions expiring on December 31, 2012, that will affect the total value individuals can eventually pass on to family. Those who do not partake in estate planning and gifting opportunities now, will lose valuable exemptions that could shield parts of their family’s net worth from gift and estate taxes.

Act Quickly

Currently, the lifetime gift and estate tax exemption is $5.12 million ($10.24 million for a married couple). However, on January 1, 2013, the exemptions will automatically roll-back to the 2009 exemption amount of $1 million while the tax rate will jump from 35 percent up to 55 percent. In simple terms, this means that gifts will be subject to a lower exemption and a higher tax rate – and that will take a bit bite out of your wealth!

Many political analysts believe Congress will act to keep this from happening. However, with the political gridlock in Washington, and this being an election year, Congress may simply not have the time or focus to act.  Even if Congress does act, it is likely that the lifetime gift and estate tax exemptions will still be reduced to somewhere in the neighborhood of $3.5 million.

Who’s Impacted

Are you wondering if this applies to you? It may. The lower exemption amount and higher tax rate will have an effect on families with a net worth greater than $7 million. But it may impact families with a smaller net worth, too. Those families with a net worth greater than $2 million could also see an impact and should consider a gifting strategy.

Save Family Wealth

The man mentioned earlier was most likely going to let his wealth pass to his children at death.  This method made sense to him as he was comfortable knowing that all his wealth would be available for him and his wife first, then to his children when they no longer needed it.

He did come to understand that he could save the family significant tax dollars if he gifted now. He’s now developing a plan on how and when he can transfer wealth this year. This action will save his family tens of thousands of dollars and will save other families hundreds of thousands of dollars.

With the sunset of the estate and gift tax provisions on January 1, 2013, it’s more important than ever to look at estate and gift planning. Don’t wait until December before you start your gift planning either… by then it might be too late.

Contact our Ohio Tax Planning Professionals

Do you have family wealth that you’re planning to pass on to future generations?  Like my client mentioned above, do you find yourself pushing your tax planning off to “next year?”  Contact Rea & Associates.  Our Ohio tax team will help you develop an estate and gifting plan this year, so that you can take advantage of the favorable 2012 gift tax exemption and rate.  Rea’s team will help you keep your money in the family.

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